Dubai ranked second worldwide for prime rental growth in 2014, registering an increase of 8.1 per cent last year, according to Knight Frank’s latest global rental index.
The increase primarily occurred in the first half of the year, with rental growth in the emirate remaining flat between June and December 2014, the report said.
“Outside the oil industry tenant demand has proved robust,” said Kate Everett-Allen, partner, Residential Research at Knight Frank.
The Middle East also recorded the strongest increase of all the world regions year-on-year, at 6.5 per cent.
The index was topped by Tokyo, with 11.1 per cent rental growth, followed by Dubai, Zurich (6.9 per cent), Cape Town (6.5 per cent) and Tel Aviv (five per cent). London, Nairobi, Guangzhou, Shanghai and Hong Kong rounded off the top 10.
However, the overall index rose by just 0.6 per cent in 2014, its weakest rate of growth since 2009.The weak results “underline the global economy’s fragility in 2014”, said Allen.
“The 16 per cent decline in prime rents recorded in Moscow dragged our global index down but four other cities also saw prime rents slip year-on-year; Vienna, Geneva, Singapore and Beijing.”
On the other hand, 12 of the 17 cities measured saw luxury residential rents increase or remain static in 2014.
“Demand and activity in the prime residential rental market is strongly linked to business activity and employment levels. Events in Europe will be critical to the overall index’s performance in 2015 with significant areas of concern still being addressed in the region’s economy,” Allen said.
“Although a ‘Grexit’ remains a possibility, business activity in the Eurozone is now close to a four-year high and deflationary pressures have eased partly due to higher wages suggesting a more positive outlook for 2015,” she added.
Dubai’s residential rents are expected to remain flat or drop by up to 10 per cent this year, according to real estate consultancy JLL.
A report by Asteco also agreed that the emirate’s rents are poised to soften in 2015 due to additional supply entering the market.
Up to 12,000 apartments and 2,000 villas are estimated to be added to the city’s existing inventory in 2015.
“This is good news for tenants across the emirate, and a more tempered rental environment is especially welcome when you consider that since 2011 apartment rents have increased by 65 per cent and villas by 55 per cent,” said John Stevens, managing director, Asteco.
The citywide annual average for a two-bedroom apartment in Dubai was Dhs122,000 at the end of 2014, with an average six per cent year-on-year rental rate increase recorded in Q4 2014, the report found.